Thursday, March 29, 2012

Video: Punk Economics on Say's Law

While Say's Law is never mentioned in the video above, it is at the heart of the argument that "punk economist" David McWilliams makes. Wikipedia has this formulation of Say's Law:
It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products. (J. B. Say, 1803: pp.138–9)
In other words, money is just another product in the market place. Like any other product in the market place, the value of money is inversely proportional to its quantity. That is, it's value decreases as more money is created just as the value (price) of any good falls when its quantity rises at a rate that exceeds the rate at which other goods are produced. If that's confusing, just watch the video.

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